Duncan Brown: Economic sense and social sensibility

‘Give Britain a pay rise.’ Not a surprising sentiment to hear from the GMB trade union, perhaps, or Labour leader Ed Miliband, in their new year missives.

At the end of December 2013, the GMB released research pointing to a 14% national decline in real wages since the start of the recession in 2008, and an average 20% fall in London. General secretary Paul Kenny argued: ”People deserve a decent pay rise after years of attacks on their living standards.”

But when the union’s views are echoed by the head of the Confederation of British Industry (CBI) employers’ organisation, John Cridland, in his annual message, then you start to think this really could be a significant shift in sentiment and, hopefully, corporate pay approaches.

Plea for better pay

Cridland’s support for ”better pay and more opportunities for all employees” and addressing the situation of ”far too many people stuck in minimum-wage jobs” contrasted with his plea to the political leaders three months earlier to put the brakes on an early election commitment to a living wage or, significantly, a higher national minimum wage, as a mooted solution to the ”cost-of-living crisis” to which Miliband and Kenny refer.

Cridland argued then that it risked prematurely curtailing the recovery in employment, which has seen unemployment fall to about 7%, its lowest level since 2009.

His change of heart seems to be part economic sense and part social sensibility. Cridland is sensitive to the swift recovery in corporate profits and bonus-driven executive pay rising with it, reminding bosses that all their employees should share in the recovery through mechanisms such as share schemes and profit-sharing plans, as well as giving ”a helping hand to young people”, over one million of whom are still out of work.

Executive remuneration

Incomes Data Services’ (IDS) latest figures from its Executive compensation review, published in November 2013, show that executive director pay in FTSE 100 firms rose by 14% in the past year to an average of £2.1 million. As political economist Will Hutton observes, the International Monetary Fund and the Organisation for Economic Co-operation and Development have both pointed out that “growing inequality menaces vigorous societies”.

But Cridland’s thinking is primarily economic sense. Pay always matters, but in 2014 it is particularly important, with our economic recovery hopefully taking hold and an election just round the corner in 2015, one which all parties agree will depend on more people feeling they are sharing in growing prosperity. Whatever the upwardly adjusted GDP forecasts purport to show, opinion polls suggest the vast majority currently do not feel better off.

Pay awards essential

As TheGuardian’s economics editor, Larry Elliott, explains, the essential factor not in yet place to drive business investment is rising real wages. Employers have got used to having the upper hand in wage determination in recent years, but now HR and reward professionals need to reinforce, in their boardrooms, that decent and earned pay awards are essential.